The Enforcement Section of the Massachusetts Securities Division charged a former Next Financial Group representative with violating state securities laws, claiming he repeatedly sold real estate investment trusts and variable annuities to clients “without regard to the suitability of the investment.”
In an administrative complaint filed Thursday in Boston, the Massachusetts Securities Division alleged Charles C. Kulch also failed to “properly calculate client liquid net worth” and allowed purchases of REITs “in excess of stated limits.”
Kulch is “no longer with the firm,” a Next Financial spokesperson told ThinkAdvisor Monday. “Additionally, we have made significant investments in our compliance controls and continue to focus on elevating our compliance practices across the organization,” he said.
Kulch “used dishonest sales practices to sell non-traded REITs and other risky alternative investments to customers for whom they were unsuitable, in violation of his own employer’s stated policies,” Secretary of State William F. Galvin, the state’s top securities regulator, said Monday in announcing the complaint.
“While NEXT put policies in place to protect investors from schemes like Kulch’s, Kulch took steps to manipulate the calculation of key figures NEXT monitored, circumventing such policies, and rendering them meaningless,” according to the complaint.
In the process, Kulch generated almost $1 million in commissions from the sale of REITs and variable annuities in a five-year period, the complaint alleged.
In that same five-year period, Kulch sold nontraded REITs to more than 100 Massachusetts investors, including almost 50 transactions that allegedly openly violated Next Financial’s own policies pertaining to overconcentration and prohibiting the sale of nontraded REITs to customers over 80, according to the complaint.
As an example, the complaint noted that in the case of an investor from Attleboro, Massachusetts, Kulch “executed three simultaneous non-traded REIT transactions on the same day the customer opened his NEXT account.”
Kulch listed the percentage of that client’s liquid net worth as 5.4% for each transaction, which “clearly exceeds the 5% limit set by” Next Financial, according to the complaint.